Issue with Development team for a app based startup when 90 percent payment is done
1 year ago
Issue at hand: The Development team has stopped the development process, asserting that certain tasks completed after signing the contract in March 2022 fall outside the agreed scope, meaning they were additional tasks not initially covered in the contract (Added in attachment for Reference). The Development team claims they haven't been compensated for this additional work. They have offered two options: either deliver the in-scope items within 30 business days or provide the entire code as it stands, but this is contingent on the Client paying for the out-of-scope work, for which the Development team has presented a bill (Added in Attachment for Reference). However, the current code is plagued with numerous bugs and suboptimal coding practices, rendering it consistently unusable. Consequently, the Client intends to terminate the development process and seek an alternative solution elsewhere. The Development team did not intimate the Client at any time before building this code in the application during the development process that these are additional and out-of-scope work, while they have brought some items as additional billables and after mutual agreement the additional cost has been agreed to be paid by the Client at the time of delivery.
In response, the Client has chosen to pursue a legal resolution regarding the out-of-scope claims in court. The Development team maintains that they have full ownership of the code and the liberty to use it as they see fit. The Client has requested that the Development team delete the out-of-scope code, as per the Development team's definition, but the Development team has not only refused this request but also retracted their offer to provide the in-scope code, insisting they will only deliver the complete code upon receiving full payment. The Development team argues that they cannot continue incurring losses on this project.
The Client's proposed final resolution is to obtain the in-scope code while having the out-of-scope items (as defined by the Development team) removed, as these were created using the Client's resources and ideas. Alternatively, the Client suggests waiting for the court's decision on the validity of the Development team's out-of-scope claims and then implementing the court's verdict regarding code ownership and disposition.
The proposed resolution has been conveyed to the Development team, and the Client is currently awaiting their response. The Client has also reached out to the Development team to schedule a meeting to expedite the process since the delays have extended the originally anticipated three-month timeline to nearly two years.
From the contents of your query and the nature of your dispute, it prima facie appears to be a commercial dispute as defined under Se.2(1)(c) of the Commercial Courts Act, 2015 and that requires to be adjudicated by a Commercial Court constituted under sub-section (1) of section 3 of the Commercial Court Act, 2015. A commercial dispute has to be instituted as per the provisions of sections 16 to 20 of the Code of Civil Procedure, 1908 (5 of 1908). As per Sec.12A(1) of the Act, a commercial suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government. As per Sec.12A(4) of the Act, f the parties to the commercial dispute arrive at a settlement in the course of the pre-institution mediation process, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator. The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996. In view of the above proposition of relevant law, you may consult with an Advocate or a solicitors firm that handles commercial disputes before the Commercial Court for guidance and steps.
Vidhikarya
The first step in any legal dispute is to review the contract thoroughly. Contracts typically define the scope of work, payment terms, and any clauses related to changes in scope or additional work. This will be a critical document in determining each party's rights and obligations. Further, the ownership of the code is a crucial issue. If the contract does not explicitly state the ownership of the code, Indian copyright laws may apply. Ensure that you have documentation showing that the code was developed using your resources and ideas.